When you’re in the early stages of a relationship, you’re busy getting to know each other and figuring out if you’re compatible. Some of the first things you’ll likely ask the person early on are his education, career, religion, political views, hobbies and interests, and maybe where he’d like his life to take him. It’s only after you’ve learned all these things and decided he’s boyfriend material that you dare ask about his financial health. So now you’re two months in, you’ve been on 15 dates, and you really like the guy. Then he mentions that he’s in debt. What do you do?
Your first reaction might be to panic. If you don’t have any debts of your own, dating someone who is in debt introduces a slew of questions, potential collection agency problems, and a much greater need for communication. The first thing you need to do is give yourself time to process this new information. Don’t make any hasty decisions, and ask as many questions as you need to give you enough information to make a decision on how to move forward.
(It’s just too difficult to constantly write him/her, s/he, boyfriend/girlfriend, but everything I’m writing is intended to be gender neutral. It doesn’t matter whether it’s the man or the woman who comes into the relationship with debt. But for the purposes of this post, I’m going to make it easy for myself and assume it’s the man coming in with debt.)
Debts are often categorized as “good” or “bad,” so let’s look at the different types of debt your new love interest may have and figure out what the right questions are to ask.
Student Loan Debt
In 2011, approximately two thirds of graduates from a bachelor’s program carried student loan debt, and the average debt was $26,5001. Student loans are usually considered “good” debt, and most people would advise that this kind of debt is not something you need to run screaming from. That’s not always the case though, and there are more things you need to know.
First of course, you need to know how big the loan is. You also want to know at least his approximate salary, and what his repayment plan is. If he went to an Ivy League school, racked up $100k in student loan debt, but is working as a cashier for minimum wage while he tries to get an acting career going, I would run the other way so fast his head would spin. Taking on a loan is a responsibility, so you want to see that he has a solid plan in place to eliminate the debt. It’s part of American culture that everyone should follow their dreams and do what they love, but if you have $100k in student loan debt, I believe it’s irresponsible to choose a career path that has an extremely low success rate and an average salary of whatever a waiter makes. Even if our country passes legislation for student loan forgiveness and his debt gets reduced, I would still be wary of a person who made such an irresponsible choice.
A man who has a clear plan in place to pay down his student loan, and a salary that supports that plan while allowing him to still save some extra money could be excellent boyfriend material.
Credit Card Debt
This is the classic “bad” debt, but again, it’s not black and white. You’ll want to ask many of the same questions about credit card debt, including how much debt he has and if he has a repayment plan. You’ll also want to know why he has credit card debt, and whether that debt is growing or shrinking each month. If he racked up all of his credit card debt from one stupid decision (maybe right after college he thought it would be a great idea to furnish his new apartment with $10,000 worth of luxury furniture on a credit card with a 0% APR offer), but has learned from his mistake and has since adopted a more frugal lifestyle and is paying off the debt, there may be nothing to worry about. If, on the other hand, he’s constantly buying things he can’t afford and only paying the minimum each month, that is not the kind of person I would recommend getting involved with.
If he has a couple thousand in credit card debt, recognizes the mistakes he made, and is repaying the debt as quickly as he can, I don’t think that’s anything to be concerned about. It gets tricky when it’s the same situation, but with much more debt. Someone carrying $40k in credit card debt who recognizes the mistakes he made and is repaying the debt as quickly as he can would still not be someone I’d want to date, even though his current financial habits may be excellent. That’s a situation where you’d really need to dig deep and figure out what you’re comfortable with. That amount of debt could seriously derail your short- and long-term goals.
This is the classic “good” debt, but there are plenty of people who take on mortgage debt that they can’t afford, so yet again, you need to know more. This is also the kind of debt you’ll likely find out about very early on because it may be somewhat obvious that he owns a house/apartment, but finding out the specifics will require a more intimate conversation.
First, you need to know how big his mortgage is, and how much money he makes. Conventional wisdom says that your mortgage payment should be no more than 28% of your gross salary, but many advise that up to 36% or so is fine. I would want to see as small a percentage as possible here. The higher the percentage, the less secure I’d feel that the man I’m interested in did his due diligence evaluating how much house he could afford.
I would also want to know how big his down payment was. Generally, it’s unadvisable to purchase a house with less than 20% for the down payment, so if he put down less than that, I’d worry that he’s the type to buy things on impulse instead of waiting until he has more money saved up.
Car Loan Debt
This is a hot button issue in the personal finance community. There are many people out there who believe you should never, ever borrow money to purchase a car. I’m a bit more lenient than that, but again, there are more details you need to know. If the guy is young and is relatively new into a promising career, he may not have much in the way of savings, but his cash flow could be very healthy. Cars are a necessity for many, so if he needed to purchase a car and didn’t have enough cash to buy it outright, but can easily afford the monthly payments, I wouldn’t worry too much.
If he purchased a new $40k car and wasn’t making at least $125k/year or so, I’d dump him right then and there, no more questions asked. Clearly his priorities are not in line with mine. If you see a car as a means to get from A to B, and he sees a car as a status symbol, this could cause a serious strain in the relationship.
In general, I don’t see anything wrong with having a small car loan as long as the guy has the payments figured into his monthly cash flow, and it doesn’t stop him from saving for other goals. Bonus points if he’s overpaying on the loan to get rid of it quickly.
This kind of debt will sometimes be carried on a credit card, but other times a debt repayment plan will be set up with the company to which the debt is owed. Crisis debt includes things like medical emergencies or major car repairs. This is the kind of debt you’ll feel really bad breaking up with someone over. It can’t feel good to tell someone, “you’re great, but I just can’t deal with all of your medical debt from the time you had appendicitis and no health insurance.”
You probably see a theme here and can guess what I’m going to say next: you need to know more details before you can decide what to do. Everyone has an occasional crisis, and that has no effect on how deserving they are of your love. What you do want to ask though, is why he didn’t have health insurance and why he didn’t have an emergency fund.
If he couldn’t afford health insurance, you might question whether he’s financially secure enough that you’d want to build a future with him. If he never got around to getting health insurance or thought he didn’t need it because he was healthy, you’d want to see that he learned from the mistake and has since purchased health insurance. If he has a high deductible health plan and didn’t have enough cash to cover the deductible, it’s time to ask about that emergency fund.
You can’t ask him to go back in time and start an emergency fund of course, but if his crisis didn’t teach him that he needs to start one ASAP, that’s a problem. Everyone needs an emergency fund, so hopefully his crisis made him realize it was time to start putting away money for the next unexpected expense. If he has since started building up an emergency fund, he’s showing that has learned from his experience and is taking responsibility for his future financial security.
A major theme throughout this post has been whether the guy learned from his past experiences and mistakes. While large amounts of debt are going to be difficult to stomach no matter what, small amounts of debt may not be so bad as long as the guy is paying them off as quickly as he can and has taken steps to ensure he avoids debt in the future.
Of course, if he won’t answer these questions for you and be open about his debts and how he plans to pay them off, that’s a deal breaker right there. Communication is the single most important thing in a relationship, and a lack of communication about money will cause your relationship to end. Better to end it as soon as you realize he won’t be communicative.
Finally, the most important thing to consider is your comfort level. Even if the guy just has a small student loan that he’s faithfully paying off and no other debt, if that makes you uncomfortable, there is nothing wrong with ending the relationship because of it. If your priorities are such that you don’t want any debt in your life, that’s your prerogative. Maybe you want to buy a house and start a family in the next few years and your potential future husband’s debt means you wouldn’t be able to do those things on your time frame. It never feels good to break up with someone over finances, but it’s much easier to do it in the first few months than once you’re married.